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- Tesla CEO Elon Musk is calling for shareholders to get a vote over whether to invest in his artificial intelligence startup xAI. The earliest this would likely come is November, when the EV company is scheduled to hold its annual meeting. The news comes as Musk’s SpaceX company reportedly contributed $2 billion to last months’s $10 billion xAI fundraising consisting of equal parts equity and debt.
Elon Musk wants Tesla shareholders to help him consolidate control over his sprawling business empire by allowing his cash-rich EV company to invest in his latest startup, xAI.
The company behind Grok is spending billions in an attempt to challenge OpenAI and its ChatGPT for leadership in the race to develop artificial general intelligence. Last week Musk unveiled the fourth generation of his Grok chatbot, which is currently rolling out to Tesla vehicles, just a day after setting a date for the carmaker’s long-delayed annual meeting.
“If it was up to me, Tesla would have invested in xAI long ago,” Musk posted Sunday evening. “We will have a shareholder vote on the matter.”
The next opportunity would be in November, when Tesla is finally scheduled to hold its annual meeting. While Tesla did not respond to a Fortune request for further comment, speculation around Tesla investing in xAI does not come as a surprise.
SpaceX reportedly invests $2 billion into xAI
For starters, the Wall Street Journal reported on Saturday that Musk’s privately-owned SpaceX company poured $2 billion into xAI despite limited business rationale (Musk tacitly confirmed the story). According to its sources, Grok is only used in some customer support features for SpaceX’s satellite broadband service Starlink.
Moreover, as Musk indicated, he has been eyeing a Tesla investment in xAI for some time. Roughly four weeks after Tesla’s previous annual general meeting in June 2024, Musk ran a social media poll to this effect.
Should Tesla invest $5B into @xAI, assuming the valuation is set by several credible outside investors?
(Board approval & shareholder vote are needed, so this is just to test the waters)
In it, he asked X users — only a small portion of whom were likely Tesla investors — whether the car company should invest $5 billion “assuming the valuation is set by several credible outside investors”. When two thirds of the nearly one million responses were in favor, Musk promised to discuss the issue with the board.
Since then, however, there has been few new developments.
xAI raises $5 billion in fresh capital—through a debt sale
That could be because using money that belongs to Tesla shareholders for the purchase of a stake in Musk’s xAI is not so simple from a governance perspective. Even with a clear use case like the integration of Grok into Tesla EVs, there is a conflict of interest.
For example, an investment would indirectly expose investors to X, acquired by xAI last year in an all-stock deal that valued the company formerly known as Twitter at $33 billion in equity and debt. With X repeatedly on the brink of bankruptcy, the transaction had the markings of a bailout, since Twitter was valued at $11 billion less than when Musk bought it.
According to Bloomberg, catching up to rivals like OpenAI and Anthropic in the AGI race also has not come cheap for xAI. The startup founded two years ago is expected to burn through about $13 billion in cash this year. Musk appeared to dismiss the report when it was published last month, claiming “Bloomberg is talking nonsense”, though he did not specify what precisely was incorrect.
Update on where has @grok been & what happened on July 8th.
First off, we deeply apologize for the horrific behavior that many experienced.
Our intent for @grok is to provide helpful and truthful responses to users. After careful investigation, we discovered the root cause…
Just two weeks later, xAI raised $10 billion in fresh capital with the help of Morgan Stanley (SpaceX’s investment reportedly was part of it). Rather unusual for a high-growth tech startup, half of that came from the debt market where investors attach clear strings to the loan in terms of repaying the balance plus interest.
Grok’s antisemitic rants prompts apology for ‘horrific behavior’
Nor has everything with Grok gone smoothly. Musk’s AI chatbot went off the rails last week, spreading numerous antisemitic conspiracy theories on X while proudly declaring itself a mechanized version of Nazi leader Adolf Hitler.
Just one day after the latest reputational scandal engulfed her ad-dependent platform, X CEO Linda Yaccarino resigned from her post. On Saturday, xAI was forced to ask for forgiveness.
“We deeply apologize for the horrific behavior that many experienced,” the official Grok account on X posted this weekend.
The last time Tesla invested in another company that counted Musk as its largest shareholder was the widely criticized 2016 deal to purchase SolarCity for $2.6 billion. Investors challenged the deal as a bailout, with Musk eventually prevailing two years ago in a case that went all the way to the Delaware state supreme court.
Nonetheless, AI is a very different shareholder value proposition than solar roofing, and a number of investors have argued in favor of buying an equity stake.
“We believe Tesla making a big investment in xAI is a key step forward,” Wedbush analyst Dan Ives wrote on Monday.
This story was originally featured on Fortune.com
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